Commercial Lending Still Weak, Leasing Picks Up

While business loan demand gained strength in some cities, commercial lending remained weak in most districts, according to the June 9 Federal Reserve Board's Beige Book.

The Fed districts are Boston, New York, Philadelphia, Cleveland, Richmond, Va., Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Data collected through May 28 showed that business loan demand firmed up in Philadelphia, Chicago, Dallas, and San Francisco. Philadelphia also indicated an increase in business lending by non-depository financial companies, and New York reported that underwriting and investment banking activity strengthened.

Overall, tightened lending standards continued for commercial mortgage access. Private equity investment in commercial properties increased in Boston, Chicago, and Dallas. Loan quality stabilized or gradually improved in most districts, but remained an issue for banks with large exposures to real estate.

Office, industrial, and retail vacancy rates continued to drift upward in many districts, which put downward pressure on rents, according to the Fed. However, lower rents were said to have led to an increase in leasing activity in New York, Philadelphia, Richmond, Kansas City, Dallas, and San Francisco. A backlog of existing properties for sale or rent continued to weigh on new private nonresidential construction. Still, Philadelphia, Cleveland and Chicago reported an increase in public construction projects while demand slowed in Minneapolis.